Passengers at U.S. carriers including American Airlines and United Airlines are burning through record numbers of frequent-flier points to avoid paying higher fares, and the companies couldn't be happier.
The airlines are adding surcharges of as much as $100 on frequent-flier tickets. And, when customers get rid of unused awards – sometimes because the airlines have raised the number of points required for flights – it eliminates millions of dollars in liabilities for the companies.
“More points and higher fees are an easier way of essentially charging more for the reward ticket,” said Jay Sorensen, who helped run Midwest Airlines' awards program and is now president of consulting firm IdeaWorks in Shorewood, Wisconsin. “Credit-card companies are happy when people earn more points, and the airlines are happy when people use them.”
Redemptions in 2008 are running ahead of last year's pace, when airlines distributed a record 10.9 million free trips.
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The free seats have become more attractive to fliers because domestic ticket prices are up 20 percent to 40 percent at the major airlines this year, according to FareCompare.com. The higher fares are a reaction to surging fuel costs that contributed to $17.1 billion in losses at the country's five largest full-fare airlines in the first and second quarters.
“It makes no sense to sit on these miles anymore,” said Dan Berman, 46, of Atlanta, who has redeemed 350,000 points from Delta Air Lines Inc. in 2008.
Buying a one-way coach ticket for a 6,400-mile flight to Tel Aviv would have cost $3,000, so turning in 80,000 points – worth about $800, by his calculation – “was a bargain,” he said.
AMR Corp.'s American said it granted 10 percent to 15 percent more award tickets in the first half of 2008, while redemptions climbed 12 percent at UAL Corp.'s United, 3 percent at Delta, and 15 percent at Northwest Airlines Corp. Continental said its cheapest awards rose 34 percent. It didn't give a total figure.
“We certainly do encourage customers to utilize their miles,” said Rob Friedman, president of marketing for American's AAdvantage program. “It's a great way to engender loyalty and hopefully more return trips.”
Airlines want customers to use up awards because they are accounted for on their books as “deferred,” “unrecognized” or “unearned” revenue.
Banks spend an estimated $4 billion a year on airline miles for credit-card rewards. Chicago-based United said Thursday it will get $1.2 billion in additional liquidity from JPMorgan's Chase Card Services under an extended frequent-flier agreement and the advance purchase of miles.